Exchange Rates Saved the Day... Kia Expected to Surpass 4Q Earnings Estimates

4Q Performance Impacted by Favorable Exchange Rates and Price Improvements
Operating Profit for Last Year Expected to Increase 40.9% to 7.1368 Trillion KRW
Operating Profit for 2023 Expected at 6.1949 Trillion KRW

[Image source=Yonhap News]

[Asia Economy Reporter Hwang Yoon-joo] KB Securities forecasted on the 23rd that Kia's fourth-quarter earnings are expected to exceed estimates thanks to a favorable exchange rate.

Seongjin Kang, a researcher at KB Securities, stated, "Kia's operating profit for the fourth quarter of last year is expected to reach 2.528 trillion KRW, a 229.1% increase compared to the same period last year," adding, "This figure surpasses the market consensus by 9.6%."

Kang explained that this was due to the smaller-than-expected increase in incentives in the United States, the effect of reversing sales warranty provisions due to the appreciation of the Korean won, and a higher-than-expected increase in sales volume (+2.2%).

KB Securities projected Kia's operating profit for 2022 to be 7.1368 trillion KRW, a 40.9% increase from the previous year. Kang cited the main factors for the sharp rise in operating profit as ▲ favorable exchange rates (operating profit +2.0979 trillion KRW) ▲ eased competition, improved mix, and price increases (operating profit +1.4691 trillion KRW) ▲ recovery in sales volume (operating profit +1.2444 trillion KRW).

Kang analyzed, "These factors significantly outweighed negative elements such as a sharp increase in sales warranty costs (operating profit -1.5514 trillion KRW)," and added, "Due to favorable exchange rates and eased competition, the contribution profit per vehicle is expected to increase by 19.5% compared to the previous year."

However, Kia's operating profit for 2023 is expected to decrease by 13.2% from this year to 6.1949 trillion KRW, which is 19.6% below the market consensus.

Kang anticipated that sluggish automobile demand would impact the poor performance. He analyzed, "There will likely be strong pressure on margin reductions common to global OEMs, and Kia's sales volume is also expected to slightly decrease compared to the previous year."

He continued, "The contribution profit per vehicle in 2023 is expected to be 7.49 million KRW, a 9.6% decrease from the previous year. To offset the resulting decline in operating profit, a 9.6% increase in sales volume is necessary."